- Both the equity and bond markets faced volatility after the Fed’s decision to halt interest rate increases, yet signalled one more hike by the end of this year.
- However, in the longer-term outlook for 2024 and 2025, interest rates are anticipated to trend downwards.
- In 2Q 2023 results, operating fundamentals for S-REITs have largely remained healthy. As interest rates are expected to trend downward next year, S-REITs will likely face reduced financing cost pressures.
- Currently, S-REITs are trading at relatively appealing valuations: their price-to-book ratio stands at 0.9x, which is below the 10-year average of 1.03x.
FOMC Update – A “Hawkish Pause”
Both the equity and bond markets experienced volatility, following the Fed’s perceived “hawkish pause” during the September FOMC meeting. While the Fed maintained its key interest rate for a second time due to easing inflation, it also signalled a potential rate hike later in the year.
However, in the longer-term outlook for 2024 and 2025, interest rates are anticipated to trend downwards. The dot plot, which visually displays the projections of Fed officials on interest rates, indicates a decrease in the policy rate from 5.6% in 2023 to 5.1% in 2024, with a further reduction to 3.9% by the close of 2025.
Fed’s dot plot indicates that policy rates to be lower in 2024 and 2025
Implications on REIT+ Portfolios
As of 31 August 2023, Syfe REIT+ 100 and REIT+ with Risk Management saw gains of 3.1% and 2.2% respectively YTD (before accounting for management fees). While the road has not been without its bumps for S-REITs, particularly with increasing interest rates inflating their financing costs, there is light on the horizon. The 2Q23 results brought in a wave of optimism. Operating fundamentals, such as the occupancy ratio and gearing ratio, have largely remained healthy. With interest rates anticipated to trend downward next year, S-REITs are likely to experience less financing cost pressures moving forward.
Currently, S-REITs are trading at relatively appealing valuations: their price-to-book ratio stands at 0.9x, which is below the 10-year average of 1.03x. You can check here for a detailed 2023 Mid-Year investment outlook and performance review.
Syfe REIT+ Strategy
Launched in partnership with the SGX, REIT+ is an optimised portfolio of the 20 most well-known Singapore REITs. Instead of fully replicating the iEdge S-REIT Leaders index, we use an optimisation process to construct an index-tracking portfolio. Our selection focuses on REITs that are SGD-denominated, liquid, and backed by a decent market capitalization and reputable management teams. You can find out more about our REIT selection and optimisation process.
Additionally, our investment team manages corporate actions like rights issues and acts in your best interest. Dividends are also automatically reinvested to enhance your returns.